Consultancy Agreement

Overview

A consultancy agreement is the contract under which an individual or company (the consultant) is engaged by a client business to provide services on a self-employed basis, as distinct from an employment relationship. Getting the structure and drafting right matters more in England and Wales than it might first appear, because employment status is determined by the reality of the working relationship, not simply by what the contract calls the parties. Employment status risk: a written 'consultancy agreement' label does not, by itself, prevent an employment tribunal or HMRC from finding that the individual is in fact an employee or a 'worker' if the actual working arrangement has the hallmarks of employment — personal service with no real right of substitution, a high degree of control by the client over how, when and where the work is done, and mutuality of obligation. Misclassification exposes the client to liability for unpaid PAYE/National Insurance, holiday pay, and potentially unfair dismissal or discrimination claims. This agreement should be drafted, and the working relationship should actually operate, in a way consistent with genuine self-employment (for example, a genuine right of substitution, use of the consultant's own equipment where practical, and freedom over how the work is carried out). IR35 / off-payroll working rules: where the consultant provides services through their own limited company (a 'personal service company'), the IR35 / off-payroll working rules may apply. For engagements with medium or large private-sector clients (and all public-sector clients), the CLIENT is generally responsible for determining the consultant's deemed employment status for tax purposes and, if 'inside IR35', for accounting for PAYE and National Insurance. This is a live and commercially significant issue that should be addressed before engagement, not left to the contract wording alone. Intellectual property: unlike an employee (whose work generally belongs to the employer automatically under the Copyright, Designs and Patents Act 1988), a self-employed consultant generally OWNS the intellectual property they create unless the contract assigns it to the client. A consultancy agreement should therefore include an express assignment (or, at minimum, a licence) of IP created in the course of the engagement, together with any waiver of moral rights needed for the client to use the work freely. Fees, expenses and termination: the agreement should specify the fee structure (day rate, fixed fee, or milestone-based), payment terms, whether expenses are reimbursed, and notice periods for termination by either side, together with any provision for termination for cause (e.g. breach, insolvency). Confidentiality and restrictive covenants: consultants often have access to sensitive client information and should be bound by confidentiality obligations; post-termination restrictions (non-compete, non-solicitation) are enforceable only to the extent they go no further than reasonably necessary to protect a legitimate business interest. When to use: for any engagement of a self-employed individual or company to provide professional or advisory services to a client business, outside a normal employment relationship. Common pitfalls: drafting a 'consultancy agreement' that in practice operates like employment; ignoring IR35 status determination where a personal service company is used; and failing to assign IP created during the engagement. This template is a drafting aid only and should be reviewed by a solicitor, particularly on employment status and IR35 risk.

Information to customize

• Client's name

• Client's registered address

• Consultant's name (individual or company)

• Consultant's address

• Does the consultant provide services through their own limited company?

  Triggers IR35 / off-payroll working considerations.

• Description of services

• Fee structure (day rate, fixed fee, or milestones)

• Payment terms

• Start date of the engagement

• Term or expected duration

• Notice period for termination without cause

• IP created during the engagement — assigned to client or licensed?

• Date of this agreement

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Frequently asked questions

Does calling the document a 'consultancy agreement' guarantee self-employed status?

No. Employment status depends on the reality of the working relationship — control, mutuality of obligation, and the right of substitution — not just the contract's label. A mislabelled agreement can still be found to create employment or worker status.

What is IR35 and when does it matter?

IR35 (the off-payroll working rules) applies where a consultant provides services through their own limited company. For engagements with medium or large private clients (and all public-sector clients), the client must determine whether the engagement is 'inside' or 'outside' IR35 for tax purposes, and account for PAYE/NI if inside.

Who owns the intellectual property a consultant creates?

By default, the consultant does — unlike an employee, whose work usually belongs automatically to the employer. The agreement should expressly assign or licence any IP the client needs to use.

Can a consultancy agreement include a non-compete clause?

Yes, but any restrictive covenant is only enforceable to the extent it goes no further than reasonably necessary to protect a legitimate business interest of the client.

Does a right of substitution matter for employment status?

Yes — a genuine, unfettered right for the consultant to send a substitute to perform the work is one of the strongest indicators of self-employed status, and its absence is a strong indicator of employment.

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